Japan capital spending gathers pace, bolstering economic outlook and BOJ hike case
Workers are seen at a construction site at a business district in Tokyo, Japan January 23, 2024. REUTERS/Kim Kyung-Hoon
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TOKYO, Sept 1 : Japanese companies increased their pace of spending on plant and equipment in April-June, a sign of business confidence that could prompt an upgrade to the economic growth outlook and support the case for near-term rate hikes by the Bank of Japan.
Capital spending in the second quarter rose 1.6 per cent compared to the same period last year, accelerating from a meagre 0.05 per cent increase in the previous quarter, according to Ministry of Finance data. Spending grew 1.5 per cent on a seasonally adjusted quarterly basis.
“Strong global growth in AI is creating pressure on Japanese companies to boost investment so they do not fall behind competitors,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.
“Combined with Prime Minister Sanae Takaichi’s planned investment incentives, this could encourage Japanese firms to bring forward capital spending, supporting a relatively solid outlook for business investment,” he added.
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The figures will be used to calculate revised gross domestic product figures due on September 8. Preliminary data last month showed the economy expanded by an annualised 1.1 per cent over the three months, down from 1.9 per cent in the prior quarter as household and business spending softened.
Corporate sales, meanwhile, rose 5.9 per cent year-on-year, while recurring profit surged 24.6 per cent to a record 44.7 trillion yen ($279.86 billion). A weaker yen and lower U.S. tariffs helped drive gains at export-oriented manufacturers.
“Corporate earnings have weathered a potentially negative impact of recent rate hikes, and the outlook is strong enough to reinforce the view that further rate increases would not pose a problem,” Minami said.
Sources have told Reuters the BOJ is set to raise rates as soon as its September 17 to 18 meeting and is considering hiking more aggressively than the current pace of roughly two times a year after that session.
TAKAICHI’S FISCAL SPENDING PLEDGE
Companies have in recent years been generally bullish about capital expenditure, a key gauge of domestic demand-led economic growth, backed by appetite for investment in information technology to offset a persistent labour crunch in the fast-ageing population.
The government has pledged to use fiscal spending to spur private investment, arguing that stronger capital expenditure is essential to increasing growth potential and improving productivity.
The pledge focuses on sectors the government deems critical to long-term growth, including artificial intelligence, semiconductors, advanced manufacturing and energy infrastructure.
($1 = 159.7200 yen)
Source: Reuters
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